Construction output falls as Brexit fears continue to hold back spending

March 2019

January data pointed to a loss of momentum for the UK construction sector, with business activity growth easing to its weakest for ten months.  New orders increased only marginally at the start of 2019, which contributed to the slowest expansion of employment numbers for two-and-a-half years.  

A number of survey respondents noted that Brexit uncertainty had led to hesitancy among clients and a corresponding slowdown in progress on new projects.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index dropped to 50.6 in January, from 52.8 in December; the weakest expansion seen over this ten month period of growth.

All three categories of construction output recorded weaker trends than those reported in December.  Residential work was the strongest performing area, although the latest expansion was the slowest seen since March 2018.  Civil engineering activity increased marginally, with the rate of growth much softer than December's 19-month high; while commercial work was the weakest performing area of construction output in January.

New business growth eased to an eight-month low in January.  Construction firms widely commented on softer demand conditions and longer sales conversion times, reflecting a wait-and-see approach to spending by clients.  Concerns about the near-term outlook for new projects resulted in more cautious staff hiring policies at the start of 2019, with the slowest rise in employment numbers since July 2016.

Meanwhile, slower growth of input buying helped to reduce pressure on construction supply chains in January.  The latest deterioration in vendor performance was the joint-weakest since September 2016.  Construction firms also pointed to the smallest reduction in sub-contractor availability for two-and- a-half years.

Input price inflation continued to moderate in January, with average cost burdens rising at the slowest pace since June 2016.

Construction firms remain positive about the outlook for business activity in 2019.  Around 41% of the survey panel anticipate a rise in output, while only 16% forecast a fall. However, the resulting index signalled a moderation in optimism since December.

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